Gold Technical Report: Gold main trend is down according to the daily swing chart. A move through the nearest main bottom at $1786 will reaffirm the downtrend. Gold settled inside the minor retracement zone at $1818-$1833. On the upside, the immediate resistance is the 10 and 200 DMA zone at $1842. Another major resistance level is 50 day moving average at $1877. A trade through $1877 will change the main trend to up.
Silver Technical Report: Silver prices face resistence around the 10-day moving average of 21.75. Major Support is seen near the May lows at 20.43. The 50-day recent crossed below the 200-day moving average, which indicates downward momentum. Short-term momentum has turned negative as the fast stochastic generated a crossover sell signal. The trajectory of the MACD histogram is in negative which reflects consolidation.
Fundamental Report: The Gold futures are steady but lower on Tuesday as the rally in the dollar took a breather, and Treasury yields dipped. Nonetheless, gains are being limited by expectations of aggressive rate hikes from the U.S. Federal Reserve. At 12:55 GMT, August Comex gold is trading $1822.40, down $9.40 or -0.51%. The SPDR Gold Shares ETF (GLD) settled at $169.99, down $4.55 or -2.61%. After Friday’s surprisingly strong U.S. consumer inflation report, traders are now looking for the Fed to raise interest rates 75-basis points at the conclusion of the two-day meeting on Wednesday. According to the CME’s Fedwatch Tool, traders are expecting 75-basis point rate hikes in June and July, and a 50-basis-point rise in September. Wholesale prices rose at a brisk pace in May as inflation pressures mounted on the U.S. economy, the Bureau of Labor Statistics reported Tuesday. The producer price index (PPI) a measure of the prices paid to producers of goods and services, rose 0.8% for the month and 10.8% over the past year. The monthly rise was in line with Dow Jones estimates and a doubling of the 0.4% pace in April. The Core PPI rose 0.5% on the month, slightly below the 0.6% estimate.
The largest inflationary drivers continue to be food, energy, and housing. Last week’s CPI report will most certainly have a profound impact on the Federal Reserve’s FOMC meeting. While there is a minority of economists that are predicting a 75-basis point interest rate hike, most analysts believe that the Federal Reserve will continue to implement 50-basis point interest rate hikes in June, July, and possibly September FOMC meetings. Concerns about rising inflation led to bearish market sentiment and selling pressure. The net result was sharp declines in U.S. equities, precious metals, and cryptocurrencies. This major selloff occurs in conjunction with sharp rises in the U.S. Treasury yields and the U.S. dollar. Crude oil continues to trade at elevated levels above $100 per barrel with crude oil futures currently fixed at $120.95 per barrel. The selling pressure was not contained to equities as concerns about more aggressive interest rate hikes by the Federal Reserve resulted in dramatically lower prices for both gold and silver.
Both the dollar and yields on U.S. Treasuries spiked sharply higher today in anticipation of the Federal Reserve aggressively modifying its monetary policy to try and stabilize the spiraling level of inflation. Unquestionably, last week’s CPI inflation report has shaken up investors across-the-board as they brace themselves for Wednesday’s announcement by the Federal Reserve and press conference by Chairman Powell. This concern can be seen with the CME’s FedWatch Tool with the probability that the Fed will raise rates by half a percent at 74.6% and a 25.4% probability that the Fed will raise rates by 75 basis points. One week ago, the FedWatch Tool forecasted the probability of a 75 basis point rate hike at only 3.1% and a 50 basis point rate hike at 96.9%. The Fed’s policy is influencing financial conditions- the housing market is slowing in terms of mortgages written and sales volume dropping, but that is not yet hitting inflation data where the housing component was still up 0.8%. The Fed needs to see the non-energy sectors of the economy slowing – i.e., those segments it “should” be able to influence. There is not much sign of that in the data, and t is the second-round effects that are coming through loud and clear. A 50bp rate hike from the Fed this Wednesday and the September 50bp hike. The sizable CPI beat and hawkish ECB are reminders that elevated inflation will continue to compete with the slowing growth narrative.